Deciding between traditional real estate and REITs in Kenya? Explore the pros, cons and profitability of each to make an informed property investment decision.
For any Kenyan at home or living abroad, investing in real estate back home is not just about growing wealth, it’s about staying connected to their roots and building a legacy. Traditional Real Estate and Real Estate Investment Trusts (REITs) are two popular pathways to residential real estate investment, but which one is the better fit? Let’s break it down.
Traditional real estate investment involves purchasing, owning and managing a tangible property whether it's residential, commercial or industrial. It is the most common form of real estate investment in Kenya.
Stability and Tangibility: Owning property provides security since you have a tangible asset to show for your investment. Many real estate investors like the emotional connection attached to owning a house and knowing that their investment is stable and long-term.
Appreciation Potential: Kenya’s urban areas, like Nairobi , Mombasa and Kisumu have shown steady property value growth. Infrastructure developments, urban expansion and increasing demand for housing make real estate a promising long-term investment.
Passive Income: Rental income provides consistent cash flow, which can support long-term investment goals. Whether it’s a furnished apartment for short-term rentals or a family home for long-term tenants, this income can be a reliable revenue stream.
Legacy Building: Real estate can be passed down through generations, making it an appealing choice for family wealth creation. Many Kenyans abroad view property ownership as a means to leave a lasting legacy for their children and future generations.
High Initial Capital: Purchasing property requires a significant upfront investment. Costs include not just the purchase price but also legal fees, taxes and sometimes renovation expenses, which can add up quickly.
Property Management: Managing tenants, handling repairs or dealing with untrustworthy caretakers can be stressful when you’re abroad. Unless you hire reliable property management professionals, staying on top of these responsibilities remotely can be challenging.
Market Fluctuations: While generally stable, the market is not immune to economic downturns or unexpected policy changes. Factors such as shifting regulations, interest rate changes or political instability can impact property values.
Real Estate Investment Trusts (REITs) in Kenya are regulated investment vehicles that allow individuals to pool funds to invest in income-generating real estate assets. Managed by licensed professionals and overseen by the Capital Markets Authority (CMA), REITs offer investors an opportunity to earn returns from property investments without directly owning or managing physical properties.
Lower Initial Capital: You can invest with a fraction of the capital required for physical property. REITs allow you to access real estate markets without the financial burden of property ownership.
Diversification: REITs pool funds to invest in various properties, spreading risk across multiple assets. This means your investment isn’t tied to the performance of a single property but rather a portfolio of income-generating real estate.
Ease of Management: No need to worry about property maintenance; professional managers handle everything. For diaspora investors, this removes the hassle of managing tenants, repairs, and other on-the-ground issues.
Liquidity: Shares in REITs can be bought or sold on the stock market, giving you flexibility. Unlike physical property, you can exit your investment more easily, providing a cushion for changing financial needs.
Market Volatility: REITs' values can fluctuate with the stock market, making them potentially less stable. Broader market trends and investor sentiment can impact REITs' performance, even if the underlying properties remain strong.
There’s no real sense of ownership : Owning and managing a rental property or commercial property offers a sense of ownership. REITs are managed by a third party and are therefore not in control of an owner.
Limited Control: Your investment is managed by a third party, meaning you don’t have a direct say in decisions. For those who prefer having a hands-on role in their investments, this lack of control can be a drawback.
Dividend Dependence: Returns rely on dividend payouts, which may vary. While REITs typically offer regular income through dividends, the payout rates depend on the performance of the fund and broader market conditions.
Choosing between real estate and REITs ultimately depends on your personal investment goals.
If you value control, secure long-term appreciation and build something tangible, real estate offers a hands-on approach to wealth creation. It’s an investment that not only connects you to your roots but also provides the potential for consistent rental income and the chance to build a legacy for future generations.
On the other hand, if you prefer liquidity, ease of management and a more accessible entry point, REITs present a practical option. They offer exposure to Kenya’s real estate market without the hassle of direct ownership, making them ideal for investors who want passive income and flexibility.
At Roots Africa , we empower both seasoned and aspiring investors with access to curated residential property opportunities across Kenya.
Visit www.rootsafrica.co.ke to start your homeownership journey today, or message us to schedule a free consultation.
